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GTAP Resource #3034

"The Political Economy of Agricultural Policy: Global Trends and Future Prospects"
by Masters, William and Andres F. Garcia

This paper uses data from the recently-completed World Bank project on distortions to agricultural incentives to analyze historical trends and cross-sectional patterns in farm policy around the world. A series of panel-data regressions ask what political and economic conditions are most closely associated with past changes over time and differences across countries in agricultural trade policy; we also look at the data graphically, using local polynomial regressions to summarize scatter plots and capture a variety of relationships across countries and over time. In testing a variety of political-economy explanations we find results consistent with hypothesized effects of rural and urban constituents’ rational ignorance about small per-person effects, governance institutions’ control of rent-seeking by political leaders, governments’ revenue motive for taxation and the role of time consistency in policy-making. Interestingly, we find that larger groups obtain more favorable policies, suggesting that positive group size effects outweigh any negative influence from more free-ridership. One novel result is that demographically driven entry of new farmers is associated with less favorable farm policies, which is consistent with a model in which the arrival of new farmers erodes policy rents and discourages political activity by incumbents. Another new result is that governments achieve very little price stabilization relative to our benchmark estimates of undistorted prices, and governments in the poorest countries have actually destabilized domestic prices over the full span of our data. Price stability is often a stated goal of policy, and would be predicted by status-quo bias or loss aversion, but the stockholding or fiscal policies used to limit price changes are often unsustainable and prices tend jump when the intervention ends.

Resource Details (Export Citation) GTAP Keywords
Category: 2009 Conference Paper
Status: Published
By/In: Presented at the 12th Annual Conference on Global Economic Analysis, Santiago, Chile
Date: 2009
Version: Draft of April 14, 2009 -- to be revised
Created: Masters, W. (4/14/2009)
Updated: Masters, W. (4/14/2009)
Visits: 2,099
- Agricultural policies
- Economic development

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